Fed’s Bullard Says The Recession Is Over But Rates Will ‘Stay Low for A Long Time’

KEY POINTS

  • St. Louis Fed President James Bullard said on “Closing Bell” that he expected the third quarter to be “one of the best quarters ever for economic growth in the U.S.” after a record downturn in the second quarter.
  • “I think our monetary policy is just right for this situation. We have a low policy rate, and we’re going to stay low for a long time,” he said.
  • Bullard noted that since inflation has largely been under the target by half a percentage point in recent years, he’d be willing to let it “run above by half a percent for quite a while. The idea here is to cement inflation expectations at that 2% target.”

St. Louis Fed President James Bullard said Friday that he thinks the economic downturn brought on by the coronavirus pandemic is over however that the main bank will continue its accommodative stance toward the U.S. economy.

Bullard stated it “Closing Bell” that he anticipated the third quarter to be “one of the very best quarters ever for financial development in the U.S.” after a record decline in the 2nd quarter when GDP fell by more than 30% on an annualized basis. The main banker stated that he believes the recession only lasted for two months and that the economy would continue to grow in the 4th quarter of 2020 and the very first quarter of next year.

Despite the improving economy, Bullard stated he did not anticipate the Fed to make major changes to its current policies, which consist of benchmark rates of interest back at its historic low and programs to buy up corporate and government bonds.

“I do not really think this has to do with financial policy. This is about the infection, and the economy adapting to the virus, the threat management around the infection, and the contagion that would otherwise take place,” Bullard stated. “I think our monetary policy is perfect for this scenario. We have a low policy rate, and we’re going to stay low for a long period of time.”

Bullard’s look came a day after Fed Chair Jerome Powell’s remarks at the virtual Jackson Hole, Wyoming, conference. During his speech, Powell described that the reserve bank was now ready to let the inflation rate run above its 2% target for a time period if it had formerly been listed below the mark.

Powell said that transferring to a target that looked like a 2% average would not be strictly formulaic. Other Fed officials have considering that provided their opinions on what would be acceptable, with Philadelphia Fed President Patrick Harker stating he’d be comfortable with inflation “someplace north of 2%” but was more worried about the development trajectory than the total level.

Bullard noted that because inflation has mainly been under the target by half a portion point over the last few years, he’d want to let it “run above by half a percent for a long time. The idea here is to seal inflation expectations at that 2% target.”

Fed officials consisting of Powell in current months have stated that the economy would need more financial help from Congress and President Donald Trump to continue the recovery. The relief programs from the CARES Act, consisting of the Income Defense Program and an additional $600 each month in unemployment benefits, ended at the end of July.
Bullard stated the rise in individual income for Americans showed that there may still be extra “resources in the pipeline” regardless of the ending of a few of the relief programs, which could be weakening the incentives to striking a brand-new deal.

Weekly initial claims data from the Labor Department showed that more than 1 million people declared unemployment benefits last week. The next non-farms payroll report is slated to be released Sept. 4.

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